A growing share of home buyers and sellers sat on ​the sidelines last year as the pace of home sales ​continued its downward trajectory.1 In fact, since ​the Federal Reserve began its series of interest ​rate hikes in 2022, the combination of higher ​borrowing costs and record-high home prices has ​fostered the steepest real estate market slowdown ​since the 2008 recession.

Priced out of the market, a generation of would-be ​buyers has been forced to delay their plans for ​homeownership.3 At the same time, current ​owners—reluctant to give up their pandemic-era ​mortgage rates—are waiting to sell, which has ​resulted in a sharp drop in listings.

But there may be some relief in sight: In December, the Fed signaled that it ​was done raising interest rates—and suggested that it could cut rates by ​0.75% over the coming year. While mortgages don’t directly follow the ​federal funds rate, they typically move in tandem—so cheaper home loans ​may finally be on the horizon.

Lower mortgage rates should bring some much-needed movement back into ​the real estate sector. But with a market this fluid, the home buyers and ​sellers with an edge will be those who proactively leverage a real estate ​agent’s on-the-ground expertise and stay flexible so that they can quickly ​adapt to changes.

What does that mean for you? Read on to learn more about the current state ​of the U.S. housing market, the potential opportunities for buyers and sellers, ​and economists’ predictions for the year ahead.

HOME PRICES WILL REMAIN RELATIVELY STABLE

Not even 8% mortgage rates could bring home prices crashing down in ​2023, as some prospective home buyers may have hoped. In fact, on ​average, U.S. property values ended the year higher—with declines in some ​areas of the country offset by appreciation in others.

Prices typically fall when rising interest rates drive down demand. So what’s ​keeping home values high?

Mike Simonsen at Altos Research points to a nationwide housing shortage: ​“Declining home prices probably require that supply-and-demand ​imbalance, and what we have is really a balance. There's a balance between ​low demand and low supply.”

Analysts expect that equilibrium to continue to prop up home prices in ​2024, although the specific forecasts vary. For example, economists at ​Realtor.com predict that the median home price will fall slightly, by 1.7%, ​while those at Fannie Mae project modest price growth of 2.8%.

However, experts widely agree: Mortgage rates will be the largest driver of ​property values. If rates fall faster than expected, more buyers will enter the ​market—which could send home prices soaring higher.

What does it mean for you? There’s no evidence that home prices are headed ​for a major decline. So if you’re ready and able to afford a home, this is a great ​time to test the waters. The best bargains are often found in a slower market, ​like the one we’re experiencing right now. Contact us to discuss your goals and ​budget. We can help you make an informed decision about the right time to ​buy.

MORTGAGE RATES SHOULD FINALLY TREND DOWN

The best news we've got incoming for 2024? The extra-high mortgage rates ​that have weighed heavily on the real estate market may finally be headed ​south.

At its December meeting, the Fed signaled that the worst is likely behind us ​and that it expects to cut its overnight rate in 2024. Analysts predict that ​mortgage rates will fall in lockstep.

“Given inflation continues to decelerate and the Federal Reserve Board’s ​current expectations that they will lower the federal funds target rate next ​year, we likely will see a gradual thawing of the housing market in the new ​year,” said Freddie Mac’s Chief Economist Sam Khater following the ​announcement.9

The average 30-year fixed mortgage rate has already declined from an ​October high of around 8%, and analysts at Fannie Mae, the Mortgage ​Bankers Association, and Realtor.com all forecast that rates will trend down ​this year, ending 2024 closer to 6%.

However, it’s not all good news: It appears that the days of 3% mortgage rates ​are firmly behind us. “As long as the economy continues to motor along, the ​new normal of higher rates is here to stay,” explains Greg McBride, chief ​financial analyst for Bankrate.

What does it mean for you? If you're a prospective home buyer, declining ​mortgage rates could give you the opportunity to lock in a more affordable ​monthly payment. And if you purchase before the market reheats, you could ​secure an especially good deal. To find the lowest rate, it pays to compare ​lenders. Ask us to refer you to a mortgage broker who can help you shop ​around for the best option.

MORTGAGE RATES SHOULD FINALLY TREND DOWN

Over the past couple of years, higher mortgage rates have cooled home ​buyer demand. They’ve also delayed the plans of many home sellers, who ​have been reluctant to trade in their current mortgages for loans that are ​several points higher.

With so many market participants playing the waiting game, the real estate ​sector has slowed significantly. National Association of Realtors (NAR) Chief ​Economist Lawrence Yun estimates that the number of existing home sales ​fell by 18% last year following a 17% decline in 2022

However, as financing costs tick down, sales volume is expected to rise. ​“Lower mortgage rates would help spur home sales activity, which [is] ​expected to increase in 2024 compared to 2023,” explains Selma Hepp, chief ​economist at CoreLogic. “Declines in mortgage rates will drive more sellers to ​trade their existing home and help add much-needed inventory to the market, ​leading to more transactions.”

There’s also evidence that the patience of holdout home buyers may be ​waning, despite higher borrowing costs. A recent survey by Bank of America ​found that the number who are willing to wait for prices or mortgage rates to ​decline before making a purchase fell from 85% to 62% in just six months.

“When it comes down to it, if buying a home is your goal and within your ​budget, the best time to buy is when you're ready financially and you can find ​a home that fits your needs,” Matt Vernon, head of consumer lending at Bank ​of America, advised in a recent release. “Even in the current interest rate ​environment, there are clear benefits to purchasing a home and beginning to ​build equity.”

What does it mean for you? If you’ve been waiting to buy a home, you might ​want to consider purchasing before the competition picks up. Pent-up demand ​could bring a flood of buyers back into the market as mortgage rates decline. ​Contact us if you’re ready to begin your home search.

MORTGAGE RATES SHOULD FINALLY TREND DOWN

Will home buyers who are eager for options have more homes to choose ​from this year?

Yun thinks so. He believes sellers will soon grow weary of waiting to list. ​“Pent-up sellers cannot wait any longer. People will begin to say, ‘life goes ​on,’” the NAR economist speculated at a November conference. “Listings ​will steadily show up, and new home sales will continue to do well.”

But not everyone agrees. Economists at Realtor.com forecast that inventory ​could drop by as much as 14% this year. The decline in existing homes for ​sale has been compounded by a persistent shortage of new construction, ​with single-family housing starts falling 10.3% in 2023 and 11.2% in 2022.

Even so, newly-built homes are playing an increased role in easing the ​supply crunch, accounting for around one-third of all homes for sale in ​2023—which was twice the historical average.12 But new construction ​alone isn’t expected to fill the inventory gap.

According to First American Financial Corporation’s Chief Economist Mark ​Fleming, the U.S. currently has a shortfall of around one million homes, and ​conditions won’t ease until individual owners re-enter the market. “Only ​when more homeowners decide to sell, and then buy again, will housing ​supply and the pace of sales return to anything resembling normal.”

What does it mean for you? Inventory remains tight, but buyers can benefit ​from the search expertise of a real estate professional. We can tap our extensive ​network to access off-market and pre-market listings while helping you explore ​both new construction and existing homes in our area.

WE'RE HERE TO GUIDE YOU

While national real estate forecasts can give you a “big picture” outlook, ​real estate is local. And as local market experts, we know what's most likely ​to impact sales and drive home values in your neighborhood. As a trusted ​partner in your real estate journey, we'll keep our ears to the ground so that ​we can guide you through the market's twists and turns.

If you’re considering buying or selling a home in 2024, contact us now to ​schedule a free consultation. Let’s work together and craft an action plan ​to meet your real estate goals.

The above references an opinion and is for informational purposes only. It is ​not intended to be financial, legal, or tax advice. Consult the appropriate ​professionals for advice regarding your individual needs.